Drugs for Seniors?

Ideology vs. Common Sense

by Patrick J. Shanahan
09/01/03

I get excited on those rare occasions when I actually know something about an issue in the public eye. It doesn’t happen very often. I’m not saying that I am ignorant, but I usually just comment on the issues of the day armed with general knowledge and a set of core principles to guide me. But the proposed Medicare prescription drug benefit, that is something I can speak to with a modicum of knowledge.

I have spent the past 15 years working in the health care sector, having spent many years in the managed care (aka HMO) world, and now working for a pharmacy benefit management firm. I know something about drug plans and how they fit into the larger health care picture.

The first thing to understand about the current debate is that, as usual, the discussions over the proposed legislation conflate several separate issues. Rather than just jump in and further confuse the issues, I think it is more productive to pick them off one at a time.

Question #1: Should the government be involved in the business of providing health care coverage? My instinctive reaction, as with most conservatives, is to say No! No! No! There is no reason to think the government would be any better at providing health care coverage than at running the post office, administering welfare programs, or building housing projects. There can be no doubt that privately run and operated health care plans do a much better job of aligning supply and demand, incentives and payment. (Even so, the third party payor model we adopted in WWII creates significant misincentives and inefficiencies.)

Question #2: is there any reason to believe the government will get out of the business of providing health care to seniors? No, not really. There are certainly opportunities for tapping into private health care plans for coverage - as is already happening - but it would be just plain foolish to believe that Medicare is going to change in any substantive way in the near or mid-term. This thing is a political landmine. The politician who dares to take away seniors “free” coverage is going to be decimated at the polls. Ain’t going to happen.

Question #2 renders Question #1 moot except as a theoretical debate on the proper limits of government. Rather than spending our time and energy debating whether the government should be providing health care benefits, we would be much better off debating whether or not the benefit that does exist should include prescription drug coverage. This brings us to…

Question #3: is there are drug coverage crisis among Medicare recipients? The most objective answer would be no. I have seen statistics pointing to the fact that 74% of seniors have some form of drug coverage. It is almost certain that the majority of these plans are more expensive and less rich than traditional drug benefit plans. Indeed, many are just “discount cards” that allow the holders to elude markups and take advantage of network discounts. But some form of coverage/discounts does exist. I have also seen statistics to the effect that - on average - seniors spend money per year on restaurant meals than on prescription drugs. There are plenty of seniors out there who do have trouble paying for their necessary drugs, but it is pretty difficult to define this situation as a systemic crisis.

(The cantankerous side of me also wonders, don’t these old folks have families? The underlying premise of all “senior” redistribution programs is that it is better to have complete strangers finance the health and welfare needs of the elderly than for the sons and daughters to do it. Why?)

Question #4: Given that we do not have an institutional crisis in drug coverage for the elderly, should the government implement a prescription drug coverage plan as part of its Medicare program? It may sound somewhat contradictory given what has preceded, but I say it should. Here’s why:

To a degree unthinkable when Medicare was created, drugs are an integral part of health care and treatment. The range of treatment options and therapies cannot even be defined except in the context of available drug therapies. To the extent that the treatment and payment should be aligned, all health plans should have a prescription drug component.

Effective use of drugs often substitutes for far more costly medical treatment. This is especially true of the elderly. Overall drug utilization tends to show age/sex patterns. The elderly use the most drugs, followed by children, women of childbearing age, and everyone else. For children, drug use focuses on things that make them better when they are sick, such as antibiotics. For women, birth control and things associated with childbearing drive the costs. For the rest of us it is a mix of situational treatments (pain control, etc) and chronic treatments for allergies, asthma, etc.

As we age, our need for “maintenance” drugs increases, and the consequences of not taking those drugs is far more severe. For seniors with congestive heart failure, arthritis, high blood pressure or a host of other ailments, taking one’s medications can be the difference between good health and hospitalization, between living at home and living in a nursing home. Two days in the hospital will cost more than a year’s worth of most drugs. The more we can do to ensure that seniors buy and take their drugs, the better the cost impact on Medicare, and the better the quality of life for our parents and grandparents. To me this is a no-brainer. I spend many hours a week seeking to understand how drug utilization affects overall health care costs and health care outcomes. Drugs are a bargain, and maintenance drugs are the best bargain of all.

To stand on “principle” and declare that the government shouldn’t be in the business of providing drug coverage is the equivalent of cutting off your nose to spite your face. The government is in the health care business, and we can choose to configure that business in a way that maximizes cost savings and positive health outcomes, or we can get stubborn and end up paying more in the long run.

Which brings us to Question #5: How should this benefit be configured? One thing I have learned is that the structure of the benefit has a tremendous impact on utilization and cost. Furthermore I have no confidence that the government will put together a benefit that makes sense. This is where smart conservatives should focus their energy - in making sure that the benefit that is finalized coordinates economic incentives with utilization. For example, a low deductible coupled with a moderate coinsurance percentage would make more sense than a high deductible if the goal is to ensure that folks take their maintenance drugs on schedule. It would also be wonderful to “means-test” the program, but that can be very difficult with seniors, few of whom have measurable incomes.

A Medicare prescription drug benefit plan designed on free market principles of incentives is the most politically palatable, cost-sensitive, and honest approach to creating a Medicare benefit that reflects existing free-market benefits.

It may not be ideologically pure, but it sure seems to make sense.